By A.A. Smyser

Tuesday, October 7, 1997

Charitable trusts
and the Bishop Estate

AN attorney friend of mine (not Randall W. Roth of "Broken Trust" fame) has a big set of books on his desk entitled "The Law of Trusts and Trustees" by George G. and George T. Bogert. A much-used reference nationwide, it has considerable relevance to the Estate of Bernice Pauahi Bishop, which has created and operates the Kamehameha Schools.

The Bogerts say one way to categorize trusts is to divide them between private trusts (Campbell Estate is a Hawaii example) and "charitable trusts," of which Princess Pauahi Bishop's trust is one of the richest in America.

The Bogerts offer well-established legal precedents to make ludicrous any narrow definition of the trust beneficiaries, such as confining it to the school and structures.

The two Bogerts say: "In charitable trusts the benefits to be provided...are to be intangible advantages to the public or to some significant class thereof which improve its condition mentally, morally, physically or in some other way. The trustees pay out money or other property...to secure for society certain advantages."

That's why we in the public give these trusts tax exemptions. We see ourselves as the beneficiaries directly or indirectly.

The Supreme Court of Georgia found, for example, that all the people of Augusta benefit from a trust to maintain a home for indigent colored people, aged 60 or older, who reside in Augusta. The public benefit is the reduced need by the rest of the community to help these people. Thus, notes my friend, the trust benefits even Augusta's wealthiest Caucasians.

The California District Court of Appeals found a valid public interest in creating a charitable trust to reward whoever may find a cure for rheumatoid arthritis, which hasn't happened yet. Under the trust, the Medical Board of the University of California will decide when it has happened and award the prize.

Maybe, my friend muses, the prize could be won by a graduate of the Kamehameha Schools sent forth as a medical pioneer based on his or her basic training received from Princess Pauahi's charitable trust.

Thus even people worldwide could benefit from KS/BE. Closer to home, all the people of Hawaii will be winners if the estate achieves the dream of trustee Oswald Stender.

His futuristic word picture, drafted in 1993, sees KS/BE developing into such a great institution -- respected nationwide -- that by the time the estate is 150 years old in 2034 "Hawaiians are the most educated, culturally rich, socially responsible and successful people in the world."

Come on, guys and gal on the KS/BE board, buildings aren't your trust's beneficiaries and the reason we give tax exemptions to the estate.

WHO can sue you or investigate you is a legal matter. But even the least of us in Hawaii are affected by your power, potential and Princess Pauahi's hope. So could be all of the people of America and the world.

My friend adds that a lot of media discussion about KS/BE uses terms in a muddy way. What Princess Pauahi created is a "trust document" outlining her wishes and how they should be carried out.

The assets she passed on are "the trust estate." The people who administer the assets for the benefit of others as directed by the princess are "trustees."The "trust" is intangible, not people or assets, but the relationship she established among them and the trust document.